QUESTION 1 :

( March 2002 )

Aman, a security officer, had previously arranged a fire insurance policy for
his employer, TG Music Hall. Three days before the policy was due to expire,
Aman renewed it on their behalf even though he had not received any instructions
from them.

One week later, the music hall was burnt to the ground. TG Music Hall
wished to ratify the contract of insurance which was renewed by Aman and submit
their claim for losses to the insurance company.

Advise, TG Music Hall as to the requirements of a valid ratification.









ANSWER :

Based on this case, we can identify that the agency was created or formed by
ratification. Ratification means the certification or acceptance by the principal for
an act done without authority or exceeding the authority given. This is where the
principal has appointed an agent to act for him but the agent exceeded the authority
given by the principal to the agent. If the principal later approves of the
unauthorized act of the agent, the principal is said to ratify the action and an
agency by ratification is created. It can also occur when a person is not appointed
as an agent but acts as if he is an agent of another person. When the principal
approves of this unauthorized action, an agency by ratification is created.

Therefore, agency by ratification may arise in the following situations:
a) When an agent, who was expressly appointed by the principal, has exceeded
his given authority, or
b) When a person, who has no authority to act for the principal, has acted as if
he has the authority to act on behalf of the principal.

If any of the above situations occurred, the principal has a choice either to
reject or accept the contract which had been made on his behalf. The principal has
the right to reject as he never gives the authority to act on his behalf. If this is the
case, the agent or the person is personally liable for the contract. On the other hand
if the principal accepts and confirms the contract this means that he ratifies the act
or the contract. As a result, agency by ratification is created and the principal is
bound by the contract with the third party.

In other words, agency by ratification can be defined as an agency relation
that is created when the principal accepts or ratifies the contract of either:

a) The agent who has exceeded his given authority, or
b) A person who is not an agent but has acted as if he is the agent of the
principal.

Section 149 provides that:
Where acts are done by one person on behalf of another but without his
knowledge or authority, he may elect to ratify or to disown the acts. If he ratifies
them, the same effects will follow as if they had been performed by his authority.

The ratification can either be express or implied as stated in section 150,
Ratification may be expressed or may be implied in the conduct of the person on
whose behalf the acts are done.

Effect of Ratification:
The effect of ratification is to render the render the contract as binding on
the principal as if the agent had been properly authorized beforehand. The principal
is bound by the contract retrospectively, that is, the contract is effective from the
date when the original contract was made by the agent, not from the date of the
ratification by the principal.

In the case of BOLTON & PARTNERS v LAMBERT, an offer by the
defendant to sell some sugar works was accepted by the managing director of a
company. The managing director acted as agent of the company but without its
authority. The defendant then withdrew his offer before the company ratified the
managers acceptance. It was held that the contract is effective from the date when
it was made, not from the date it was ratified by the principal. Hence the defendant
bound by the contract with the company.

However, there are some conditions to be fulfilled in order for the
ratification to be valid. The conditions that related to the case above are as follows:
a) The act or contract done by the agent was unauthorized either without
authority or exceeds the given authority.
b) The unauthorized act done by the agent must be one which is recognized
by law, not illegal.
A contract which is void or illegal cannot be ratified because an illegal or
void contract cannot be enforced by the law. Neither can the principal
ratify a criminal act. For instance, in the case of BROOK v HOOK , it
was held by the court that the principal may not ratify a contract in which
his signature had been forged by the unauthorized agent. This is because,
forgery is an illegal act.
c) When the contract was made the principal must actually be in existence.
When the principal ratifies the unauthorized act of the agent, the
ratification takes effect from the time the contract was made by the agent
and the principal is bound by the contract retrospectively. Hence, at the
time when the contract was made, it is necessary that the principal must
be in existence so as to be able to be bound by such actions or contracts
made by the agent.
This is illustrated in KELNER v BAXTER, it involved a contract to buy a
hotel made by an agent on behalf of a company which was not registered
or formed. It was held that the contract could not be validly ratified by
the company because the company (principal) did not exist at that time.
However, for a company, the position in Malaysia is now governed
section 35 of the Companies Act 1965. The section allows the company
to ratify any contract made on its behalf even though the contract is made
before the company itself is formed or registered. The section provides
that any contract entered into by a company or its agent prior to its
formation may be ratified by the company after its formation. Upon
ratification, the company is bound by the contract as from the date the
contract was made. Prior to ratification, or if no ratification by the
company, the agent purporting to act for the proposed company will be
personally liable unless there is an agreement to the contrary.
In COSMI C I NSURANCE CORPORATI ON LTD v KHOO CHI ANG
POH, the issue was whether the company bound by the contract which
was made pre-incorporation of the company. It was held that the pre-
incorporation contract was validly ratified by the company and therefore
the company bound by it as it complied with the two conditions required
by section 41 of the Singapore Companies Act 1967 (equivalent to
section 35 of the Malaysian Companies Act). The conditions are:
1) The contract purported to have been entered into by a person on
behalf of the company prior to its formation, and
2) The company ratifies the contract after its formation.
d) The principal must have contractual capacity at the time when the
contract is made and at the time of ratification.
According to section 11 of the Contracts Act 1950, a person having the
capacity to enter into a contract must be of the age of majority, sound
mind and must not be disqualified by the law. Hence, a principal must
have all those qualities at the time of making the contract and at the time
of ratification in order to be able to validly ratify the contract. This is
because, as stated earlier, the principal will bear the liability in the
contract from the time the contract is made. Therefore, he must have full
capacity. In BOSTON DEEP SEA FI SHI NG & I CE CO v FARNHAM,
the Court held that since the principal was an alien enemy at the time,
clearly he cannot ratify.
e) The principal must have full knowledge of all material facts at the time of
ratification.
Section 151 states that No valid ratification can be made by a person
whose knowledge of the facts of the case is materially defective. When
the principal ratifies the unauthorized act or contract made by the agent,
he must have full knowledge of all facts which are important in the
contract as he would be liable for the contract. Facts which are material
include names of parties, subject matter, terms and conditions of contract.
In MARSH v J OSEPH, a principal had ratified a contract without the
full knowledge of all material facts. The court held that the principal was
not bound by such contract.
f) The principal must ratify the whole act or contract. He cannot accept only
part of the contract.
Section 152 provides that A person ratifying any unauthorized act done
on his behalf ratifies the whole of the transaction of which the act formed
a part.
Hence, a principal cannot ratify or approve only part of the contract. He
must ratify the contract in totality or wholly.
g) Ratification must be made within a reasonable time.
The principal must ratify the unauthorized act of the agent within
reasonable time, as soon as possible. What is reasonable time depends on
the circumstances of the case, the nature of the contract, the subject
matter of the contract. For instance, in METROPOLI TAN ASYLUM
BOARD v KI NGHAM & SONS, the agent contracted to buy eggs
without the authority. The principal tried to ratify the contract one week
after it was made. It was held that the ratification was too late.














QUESTION 2 :

( October 1999 )

Notrah instructed Meor, her agent to store 1000 sacks of potatoes, 200 chairs
and 300 desks, which belonged to her in Meors warehouse until she could find a
buyer for them. A few days later, Meor discovered that the other perishable goods
kept in the warehouse.

He tried to contact Notrah but was informed that she was out of town and
could not be reached. Meor later sold the potatoes, desks and chairs to Hazlifah
below market price.

Advise Notrah.








ANSWER :